Tax Credits for Carbon Capture Won’t Work Without Fixing EPA Regulations
Interest in CCS is high, as shown by the almost 100 companies, organizations and individuals that submitted comments in early July to the IRS as part of a rule-making on how to handle the large carbon capture tax credits Congress passed in 2018.
The 45Q tax credit program runs until 2024 and is worth up to $50 a metric ton of CO2. Currently, about 70 million metric tons are reinjected underground each year and industry advocates say billions of tons could be sequestered from U.S. heavy industries like steel and iron foundries, ethanol plants and cement kilns, if the rules were easier and less costly to follow.
Yet the EPA raised industry hackles earlier this year, arguing that carbon capture has not been “adequately demonstrated” on a commercial scale. This claim simply isn’t true. In fact, a successful demonstration project is already operating at the Petra Nova coal plant outside Houston, and another is under construction at a natural gas facility in La Porte, Texas.
The biggest hurdle to carbon capture isn’t the technology, but rather the EPA and its onerous, overly prescriptive rules and reporting requirements that often make drilling the necessary storage wells cost many times more than it should. Nor do EPA rules protect companies from the liability risks that naturally exist when undertaking new technologies. And this acts as a powerful disincentive to invest in the development and broader roll-out of the technology.
Currently ,the EPA has oversight authority over drilling practices thanks to the Safe Drinking Water Act’s rules that protect the country’s 151,000 public water systems. In general, this oversight works well, and permits thousands of industrial wells to be drilled every year with virtually no damage to underground sources of drinking water.
In 2010, the EPA created a new class of drilling category—Class VI—specifically for geologic storage of CO2 on the presumption that there would be demand for the technology. But in the nearly decade since then, fewer than 10 have been licensed, even though tax breaks were supposed to lower the investment risk for companies.
This is because during its rule-making process back in 2010, the agency left too many uncertainties and created unrealistic standards to be met for companies that were interested in burying carbon permanently underground. In fact, by the EPA’s own admission, the difference in cost to build a facility to inject carbon for permanent storage and one injecting carbon for other purposes like enhanced oil recovery is about 80-fold—$320,000 per well compared to $4,000 per well.
Such excessive cost for CO2 storage is a function of poorly conceived rules and disagreements over monitoring and liability. Such a perverse difference in cost suggests that the CCS industry deserves a do-over from the EPA. And accordingly, the agency’s chief administrator Andrew Wheeler should consider re-opening the rule-making for carbon sequestration for Class VI wells in a fashion similar to the way the IRS asked for comments regarding its guidance on 45Q tax credits.
The maturation of CCS technology in the next several years is the most important missing piece to the puzzle of how to keep the planet form overheating without drastically undermining economic growth. Lowering the barriers for innovation and exempting geological storage wells from federal oversight is likely the fastest, best way to get there.
Congress’s 2018 tax credits have a real chance to change the way industries control for carbon and while a new rule-making period would finish after the 2020 elections, the bipartisan nature of support for carbon capture investments nevertheless gives the endeavor additional political support. But the regulatory roadblocks that the Trump administration so often admonishes as the root cause of so much economic and technological malaise, must be dealt with before carbon capture can finally thrive.
Image credit: Mark Van Scyoc
